Inside the clone factory: the story of the Samwer brothers and Rocket Internet

They have built high-growth companies that were acquired by eBay, Groupon and News Corporation. They have used their profits to invest in Facebook, LinkedIn and Zynga. Their Groupon stake was estimated at more than a billion dollars (£640m) at the close of its shares' first day of trading last November. And their incubator, Rocket Internet, has produced an array of aggressively growing internet businesses in Germany and beyond.

Marc, Alexander and Oliver Samwer, three publicity-shy brothers based in Munich and Berlin, are among Europe's most consistently successful digital entrepreneurs. Yet they are also are among the most controversial.

Mention the Samwer name at an internet conference from LeWeb in Paris to Munich's DLD, and there's a good chance you'll hear them dismissed as "clone" kings, who simply copy existing high-growth web companies, from Airbnb to Pinterest -- often selling the businesses back to the people who originated the idea. It's a strategy that has made them plenty of enemies: "The Samwer brothers are despicable thieves," serial entrepreneur Jason Calacanis tweeted in December. "How do they sleep at night?"

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Now the brothers are facing more than peer disapproval.

Disaffected staff at their Rocket Internet incubator have been quitting. According to former senior manager Christian Weiss, around 25 people have so far given notice, including Weiss himself, to start their own incubator. Then, last December, Oliver Samwer was forced to issue a public apology after an internal memo was leaked to TechCrunch: "I will die to win and I expect the same from you," he told senior staff building an international furniture business. "The time for the blitzkrieg must be chosen wisely, so each country tells me with blood when it is time. I am ready -- anytime!... I do not accept surprises. I want this plan confirmed by all three of you: you must sign it with your blood."

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So, just who are the Samwers? "I very rarely do interviews -- almost never," says Oliver Samwer across a conference table in the brothers' venture capital firm, the European Founders Fund, in Munich on a late September afternoon. Oliver, 39, is trim and decked out in a fitted button-down shirt, jeans and Gucci sneakers.

Alexander, 37, is in the office too, wearing a blue Lacoste shirt. The youngest brother, he holds a master's degree from Oxford and a Harvard MBA. Marc, 41, who has a reputation for being the most charismatic of the three, is currently busy with his duties at Groupon.

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Alexander is cordial, but the job of talking on the record goes to Oliver. "We are builders of companies, we are not innovators," he tells Wired. "Someone else is the architect and we are the builders."

Oliver takes issue with the prevailing notion that he and his brothers are driven purely by money. "If I was motivated by money alone, I would have stopped a long time ago," he insists. Rather, he suggests that what galvanises them is winning: "To prove over and over again that we're the best," he explains.

In an industry that celebrates innovation, the Samwers are not originators, but they are extremely effective in their chosen field: they see concepts that are working in the US or Asia and replicate the approach for new markets with high barriers of entry.

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Their "clones" can be found in populous, non-English-speaking countries including Germany, China, Russia and Brazil. "It's become a joke: 'You'd better watch your back or the Germans will kill you,'" says San Francisco-based Loïc Le Meur, who runs LeWeb. Le Meur says that he has no desire to trash the Samwers, whom he considers to be friends; but he does worry that their success has helped to encourage other copycats. "It's making a lot of money for the Samwers, but it's killing innovation in Europe. It's telling young entrepreneurs that the ideal way to make money is by copying something that works in the US, then selling it back to the original."

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Serial entrepreneur Stefan Glaenzer made a similar point in an op-ed for the Frankfurter Allgemeine in 2010. He speculated that Berlin's Mitte district had become the global centre for cloning digital businesses, and called on investors and entrepreneurs to summon "the courage to think big and try to improve the world rather than chase the fast buck".

Shortly after he wrote this, two entrepreneurs who had previously worked for the Samwers came to Glaenzer with the idea for DailyDeal, a Groupon clone. "When [Fabian and Ferry Heilemann] told me about Groupon's business model, I was amazed by its beauty," he says. He softened his stance to invest. "I said, even though I wrote a huge article two months before about how much I hated copying, I would actually engage with the copying," says Glaenzer. He cofounded Rebate Networks with StudiVZ cofounder Michael Brehm to export the model to eastern Europe, south-east Asia and China. "From a business point of view, it's the fastest-growing business ever," Glaenzer says. DailyDeal was acquired by Google in September 2011 for a sum rumoured to be between £98 million and £130 million. It seems that even the doubters can be persuaded of the benefits of cloning.

The model that proved so effective for the Samwers came about, if not by accident, at least partly as a result of eBay's inattentiveness in its early days. In 1998, when the brothers were living in San Francisco, Marc was struck by the number of people in his office who were using eBay. Following a brainstorming session during a Christmas holiday together, the Samwers agreed that eBay would make sense in the German marketplace.

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Europe's largest economy had been through a decade of fierce upheaval following its reunification in 1990, but retail law was still focused on preserving social mores rather than promoting commerce. Sunday-shopping laws were restrictive, and Germany boasted Europe's toughest restrictions on retail discounts. Online auctions would at last offer Germans the chance to feel they were getting a deal. The brothers say they sent several emails to eBay suggesting that the company establish an online auction platform in Germany, and that they should be hired to run it. When they didn't receive a reply, the brothers returned to Germany and, in January 1999, brought in three friends to develop their own platform.

A month later they founded Alando ­-- a German-language online auction website. Among the first items for sale were their own childhood toys: Alex sold his train set, Marc auctioned an old pair of roller skates and Oliver some coins. The team also created what it called "category captains" who were each responsible for a specific area of the site. "We had one person focusing on stamp dealers, one person focusing on consumer electronics etc," Oliver says. "We took it into our own hands and didn't wait for the market to be founded."

Within 100 days of going live, the site was sold to eBay for £35 million. "Those three months were all about execution," says Niko Waesche, an entrepreneur who helped set up Alando's technology. "When it started, there were at least 18 auction sites in Germany -- we weren't the only ones. [The Samwers] were execution motors."

On September 22, 1999, The New York Times ran a story about the Samwer brothers and Alando, detailing how they had inspired other German startups. The success of the German eBay also alerted major US tech firms to the potency of the market in Germany. Former eBay CEO Meg Whitman recalled in her autobiography: "When we started eBay Germany, it took off like an absolute rocket... Germany was the fastest growing of all eBay sites."

The Samwers remained at eBay for a year, before leaving to create Jamba!, a mobile-phone-content platform. The brothers again demonstrated entrepreneurial flare: when revenues initially didn't meet expectations, Oliver decided that rather than pushing individual ringtones, the company would create a subscription model. The Samwers also did something else that was unusual for online at the time -- they invested heavily in television advertising. "Many people think that it doesn't pay back," Marc Samwer told the Google Zeitgeist conference in 2007. "We tested it, first with $10,000, then with $100,000, then with $1 million. In 2005, we spent $70 million in one quarter on television advertising worldwide."

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The brothers also bankrolled the creation of a new character for the mobile age: the Crazy Frog.

Regularly cited as one of the most annoying pop creations in history, the tune sped to number one on singles charts across Europe and beyond. Jamba! was sold to VeriSign, the network-infrastructure company, for £176 million in 2004. The sale was proof of concept: the Samwers' pragmatic method, an approach built on the inspiration and innovations of others, was now a certifiable business model.

Over the next few years, the brothers invested in German versions of YouTube (MyVideo), Twitter (Frazr) and Facebook (StudiVZ), as well as other technology properties based on US models. Not all were successes, but there were enough to suggest the Samwers could take their model one step further. In 2007, they founded Rocket Internet, their Berlin-based incubator that's often derided as a clone factory. Oliver prefers to think of it as "the United Nations of entrepreneurs". On its website, Rocket states that it supports companies in more than 20 countries. "Fail fast" might be the entrepreneurs' mantra, but at Rocket the wisdom is slightly different: scale fast. "The anti-copycat revolution starts now," declared a blog post on August 9, 2011, from the offices of Berlin startup 6Wunderkinder. The company's US press officer and English marketing manager used the post to call on Berlin founders to "stand up" for the German spirit of innovation. But the inspiration came from its German founder, Christian Reber, 25. "Copycats are not companies that work on ideas and make them a little better, they simply try to copy it and sell it very fast," Reber says. "It's the only idea."

With a raft of innovative startups expanding from Berlin -- including SoundCloud, ReadMill and Amen -- Reber thought the time had come to send a message. His company has recently received series-A investment from Niklas Zennström's venture fund Atomico totalling £2.7 million. "It's a positive development because it highlights for the rest of the world what we in Berlin already know," explains Alex Ljung, cofounder of SoundCloud, a music-sharing platform.

Ljung and his cofounder Eric Wahlforss moved to Berlin from Sweden in 2007. "We would meet startup after startup that was building something, and it was almost always a replica of something else targeted at the German-speaking markets," Ljung says. "That is not in our DNA, that copycat type of thing."

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It was a jarring juxtaposition for Ljung, whose business was inspired by Berlin's creative chaos. "The Berlin ethos is about counterculture, and for me startups are counterculture. They're about doing something different," he says. "Putting something in place that wasn't there and changing how things are done. With cloning, you're changing things in the local [context] but you're also just replicating things in the macro." There was talk among Berlin's more inventive founders of creating a "manifesto" in the tradition of Bauhaus. "But if you want to write a manifesto, you end up with late-night meetings that make you feel like you're founding a political party," explains Felix Petersen, cofounder of Amen and pre-Foursquare mobile check-in tool Plazes. "I'm not a believer in saying, 'Here are the 20 fixed rules and, if you're not adhering to those, you're not in the club,'" concurs Ljung. The plan was shelved.

Discussion about Berlin's culture of cloning has attracted the attention of Silicon Valley power brokers. "You haven't arrived until your web application has a German clone it seems," TechCrunch founder Michael Arrington mused back in 2008.

The debate gained intensity in June 2011 after San Francisco-based Airbnb, a platform for renting out private residences through an online booking platform, warned its community of imposter sites. "A new type of scam has been brought to our attention: Airbnb clones posing as competition," the email, sent from detectives@airbnb.com, read. "We've discovered that these scam artists have a history of copying a website, aggressively poaching from their community, then attempting to sell the company back to the original." The Samwers' Berlin-based Wimdu and Chinese-language Airizu were not named, but were clearly implicated. For entrepreneurs who prefer to fly under the radar, the Samwers were left exposed.

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In Munich, Oliver Samwer isn't apologising. He won't say much about Groupon, the Chicago firm whose international rollout he has been helping to guide, and he politely sidesteps a question about Crazy Frog.

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The brothers' reticence is understandable. Their last significant media profile, in Germany's Manager magazine in February 2011, likens the brothers to a "pack of wolves" who can "smell money through a window". The story details how two entrepreneurs-in-residence at their "clone factory" were dismissed shortly before the sale of CityDeal to Groupon in 2010, leaving them with nothing. "Despite what certain press like to write about our company, we have an extremely strong loyalty," insists Oliver.

To bolster his argument, he mentions a recent Reuters story about Groupon turning to executives from Citydeal to help boost slowing growth in the former's US business ahead of a planned IPO. "It is because of the quality of the work we do, but it's also about loyalty," he says. "I've been with some people through five different companies, one after the other, and this is the same.

There's loyalty among the brothers, loyalty among the founders. Of course, it's not a complete dream world," he acknowledges. "Look at the hundred founders we had to build Groupon; yes, we got rid of two and that's what a magazine likes to write about."

Oliver is often referred to as the driving force of the Samwer operation. Yet he insists that he's a middling talent when judged alongside his two brothers. "My younger brother is probably the most intelligent and my older brother is probably the best at execution -- I'm somewhere in the middle," he says. "It's a perfect team."

The truth is, Oliver Samwer exudes intensity. Questions to him are accompanied by a "yah, yah, yah, mmm-hmm" that suggests he knows not only the answer to what he is being asked, but where a line of questioning is going and what's behind it (see the final gallery image).

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He says he makes no claim to be an innovator. "My advantage is never that I'm the first," he says. "Never. My advantage is that we just build faster and better in more instances than anyone else."

Asked whether he thinks someone at Wimdu overstepped a line, he doesn't hesitate in his answer. "No."

A few weeks earlier in Berlin, Rocket Internet managing directors Florian Heinemann and Christian Weiss, both long-serving Samwer lieutenants, dutifully defended the model but conceded they were concerned about how the Airbnb-Wimdu controversy reflected on the incubator. "Aggressiveness is completely OK as long as you're not lying," said Heinemann. Both he and Weiss emphasised that they were not involved in day-to-day decision-making at Wimdu, but both admitted the episode had undeniably been damaging. "The people looking at it, they will always see it as something done by Rocket, and that doesn't help us," said Weiss.

Oliver is more concerned by what he sees as a double standard. "In the internet, everyone says this kind of thing is a copy," he says. "But look at the reality. How many car manufacturers are out there? How many washing-machine manufacturers are there? How many Best Buys? Did someone write that Dixons copied Best Buy, or did anyone ever write that Best Buy copied Dixons, or that [German electronics retailer] Media Markt copied Dixons? No, they talk about Media Markt. They talk about Dixons. They talk about Best Buy. What is the difference? Isn't it all the same thing?"

***

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Born within four years of each other, the Samwer brothers grew up in Cologne and have always been close friends as well as siblings. They played hockey together, went on family holidays and held the collective ambition of combining their individual strengths to build a business. Their parents, both lawyers, provided inspiration. "Having your own law firm is like your father having his own bakery store," Oliver says. "You learn very early on about hard work, about the good years, the bad years, serving clients... It's like attending a mini business school for entrepreneurship."

Until the mid 90s, the internet wasn't even on the brothers' radar. They were fascinated by the rise of low-cost airlines. Virgin's Richard Branson was a hero, as was Michael O'Leary of Ryanair.

But there was a problem: they'd need a plane, and a good deal of experience in the airline industry. It didn't seem like a business for young people. "We always dreamed of starting a company when we were aged 12, 14 and 16," Marc explained to Zeitgeist back in 2007. "Our problem was we wanted to be entrepreneurs first, then had to find an idea."

Oliver says that coming of age in the mid 90s was a "lucky accident", as the internet was transforming business. Struck by the launch of Netscape at the same time, Oliver set about learning everything he could about the new global network.

The brothers may have been at a loss for new concepts, but they knew where they should be looking for one. In 1998, they took a trip to Silicon Valley, where they worked as interns and spent evenings watching talks: "We listened to people like Steve Jobs telling the people at Stanford Business School, 'Forget investment banking, forget consulting, go to Europe and find love.' Which, for us, meant going to the US, finding our idea and starting it in back in Europe, and that turned into the eBay idea," explained Marc in 2007.

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As well as copying others' models, the Samwers have made significant investments in originals, including Facebook, LinkedIn and Zynga. "At some point in time, we had a shift in orientation," Oliver says. Asked to confirm a TechCrunch report in February 2011 that the brothers had sold their Facebook stake, making a "killing" on their original investment, Oliver responds, "I cannot comment on anything. We're not an investor in Facebook, that's all I can say." Oliver also confirms that the brothers are no longer investors in LinkedIn and Zynga. He refuses to elaborate, saying only that they're "all very good companies that we still admire, but we found our back-to-the-roots, true orientation, which is building." In 2007, Oliver approached Weiss, who had been a trusted associate of the Samwers for several years, and proposed joining forces to create a new kind of incubator, dedicated to building technology companies from the ground up. Its name would say something about its mission: Rocket Internet. "We were always fascinated by the idea of starting something new," explains Weiss at the Sankt Oberholz coffee shop in Berlin's tech district. "We looked at trends in the US, the Asian market and in the offline industry, and thought about how we could bring them online, because this is what we have some relevant experience at doing. That was the original idea for Rocket: bringing together people who will then allow us to be faster than competitors whenever we have an idea, because we can start right away."

For a four-year-old operation, Rocket's performance has been extraordinary. Weiss says the company has so far launched around 30 startups, only five of which have failed. Expertise can be shared throughout the portfolio of the Samwer companies and best practice applied across new ventures.

Entrepreneurs-in-residence are hired to oversee individual companies, but overall strategy has been largely shaped by four managing directors. "We take a pretty systematic look at models that are already out there and we basically try to define whether a model suits our competence and is large enough that it's worth it for us to go in there," explains Heinemann, the MD charged with Rocket's business intelligence in the buzzing offices of Zalando, an online shoe retailer inspired by Zappos. According to Heinemann, Rocket decides which business to launch not by performing lengthy analyses or conducting protracted business plans, but by looking for "structurally sustainable business models" where the cost of acquiring customers can be recouped over "a sensible time frame".

And what is a sustainable time frame? "That really depends on the nature of the platform," Heinemann answers. "We usually try to make a business not neccessarily profitable but generate a contribution margin over half a year. So, if you [spend money attracting] a customer, this customer should contribute to paying for all of the infrastructure after half a year." If that doesn't happen? "We would usually end the business," Heinemann says, offering DealStreet and eCareer as two examples.

He denies that the Samwers are building businesses in order to flip them quickly. "We would never rely on building a business that can then be sold to somebody just because they are stupid enough to buy it, because you can never be sure whether you'd actually be able to sell it to somebody eventually," insists Heinemann.

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Heinemann, whose professional involvement with the Samwer brothers goes back to Jamba!, holds a PhD in innovation management, and he disputes the accusation that Rocket offers little in the way of innovation. "What a lot of people do not recognise is that innovation does not only happen on a conceptual level, on an idea level, but also on an operational level," he says. "Sure, innovation on a conceptual level, if it works, produces great results. But on the other hand, the risk of messing up and wasting resources is rather large, right? As long as we produce businesses that are sustainable, that are successful, I can't see anything bad about it. Would it be better if we were creating more innovation on a conceptual level? Sure." "Give me a break, OK. Whose idea isn't derivative? Whether we're talking about art, music, culture, software, technology: come on, what isn't derivative?" asks Jerry Colonna, a New York-based venture capitalist turned life coach, who is in Berlin to school would-be entrepreneurs on the pressures and perils of the entrepreneurial life. "Should Tim Berners-Lee, who invented the protocols for the web, sue everybody? You're all aggressively copying hypertext linking. Come on!" he sighs. "If you really want to compete, outdo them. I was an investor in Lycos, the first search engine, and we spun that out of research at [Pittsburgh's] Carnegie Mellon University. My first venture firm provided the initial capital to do that. Should we sue Google? Google killed them because they did it better. Hats off to them."

Colonna says he and his business partner Fred Wilson "have seen this before" in Latin America and China where they made a series of investments in the 90s. "The trajectory of the anti-copycat movement is perfect," he says. "It's exactly the path they should be on. Out of that will come the SoundClouds. SoundCloud is a copy of nothing. It's the perfect embodiment of Berlin. It's culture.

It's music. It's technology, but not for technology's sake. You could argue that unless the Samwer brothers did what they did, there wouldn't be a SoundCloud." "I know of many companies in and around Berlin that were started by people who learned what they had to learn [through clones]," says Anthony Barba, the founder of the social network Pistachio, who has come to hear Colonna talk. "This conversation about clones being bad loses sight of the fact that it is building the next generation of entrepreneurs for Berlin."

Barba once wrote a playful clone manifesto. Among its laws: "If you can't answer how you got the idea for your startup, you might be a clone." Instead of releasing the manifesto, he launched co-found.me, a group that matches people with ideas to people who can provide the technology. Even Reber, the founder of the anti-copycat movement, agrees that clones have served a useful purpose. "The reason we exist is because of the Samwers, because they have demonstrated that we are able to create fast-growing startups [in Berlin]," he says. But, he adds, "The way they do it at the moment is the old way and now there is a new way: working on innovative ideas."

Oliver Samwer and Stefan Glaenzer both mention the Japanese automobile sector when explaining how copying can foster innovation. "People talk about the Toyota Prius, but what about all the other cars Toyota made?" Oliver asks. "Were they the first? No. Before, Toyota copied the German cars. The Japanese copied everything, then [it came up with] the Prius." Glaenzer says: "If you start competing against someone who is more knowledgeable and successful, it's best to copy, to learn and to achieve a level where you can become more innovative. That's exactly what has been happening in Berlin in the last 12 to 18 months."

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So what's next for the brothers? "I can't tell you my long-term strategy," Oliver answers. But then adds, suggestively: "Over time, we're going to do the entire spectrum of ideas." These ideas, it turns out, will be executed without the help of two of the four managing directors who were running Rocket Internet until recently.

Weiss and Uwe Horstmann are among those who have decided to leave. They have received £41 million in investment to launch Project A Ventures, which has set up shop roughly 500 metres from Rocket. They aim to compete with the Samwers, while not copying their formula outright. A broader range of products is promised.

Weiss says Oliver was upset when he was told the news, and that at least 25 employees from Rocket and its portfolio of companies had already defected. Contacted for comment in January, Oliver says in an email (reprinted on the previous spread): "One thing will never change, that we continue to build many of the best companies outside the USA over and over again." With that, he signs off -- "Best, Oli."

Matt Cowan wrote about failing to succeed in 05.11

Oliver Samwer goes on the record

As this story went to press, Oliver Samwer sent the following email to WIRED:

You know that I focus more on the companies that I help to build than press, so here [are] just the facts so that you understand why Techcrunch [reporting on Rocket Internet departures] is completely off...

1. Rocket is already bigger now than it was in november when Christian [Weiss] left. We are growing in number of people and companies every month.

2. Christian was one of 50 people to drive Rocket, so losing him has no impact (see above). He was never involved in the building of any of the bigger companies, since his strength was never execution. Still I wish him well and we have a very good relationship (see 3).

3. Leaving people [sic] is as normal as from time to time partners at Goldman Sachs leave to pursue independent things (like start hedge funds).

4. We currently have the best team ever and it is getting bigger and better every day, therefore anyone who doubts Rocket's success in the future has not really understood Rocket's strength: we are the best global group at execution and we continue to do this in the next years. Andrew Mason [Groupon's CEO] said in public at DLD a week ago that the Samwers are among the best entrepreneurs he has ever met (these are the things that really matter since he knows how we really are).

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5. With regards to the [blitzkrieg] email: I apologised for the inappropriate language. Many comments understood the rest of the email and i got a lot of friendly comments about the passion that we have about building great companies...

You decide yourself how fair and how much your story should reflect reality. One thing will never change; that we continue to build many of the best companies outside the USA over and over again.

Best, Oli.

This article was first published in the April 2012 issue of WIRED magazine